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FNT1
by

Morgan Clements

on 4 January 2013

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Transcript of Copy of Business Presentation

PRESENTATION
Cash flow for year 2 is at 629, 375 (income tax of 70,625). If there were no depreciation for year 2 cash flow would decrease to 525,000 for year 2.
1a)
The reason for this decrease is with no depreciation expense, you will pay more taxes.
PRESENTATION
Based on the Net Present Value of the investment being over 17 million dollars and the initial investment being 3.4 million dollars I would advise Entrepreneur D to invest. The investment period desired by the Entrepreneur is 8 years, his investment would be paid back within 5 years with an internal rate of return at 10.861%. This is a smart investment and he will recover his initial funds within a desired amount of time.
PRESENTATION
The internal rate of return (IRR) is the interest rate at which the present value of the dollars invested in a particular project would equal the present value of the cash inflows from the project. The present value means future cash discounted back to the current period. This interest rate is the break-even point. For a company to invest in the project, it would have to earn a greater return. For example, a project with a \$1,100,000 investment, payments of \$400,000 in Year 1 and \$600,000 in Year 2 with a \$250,000 salvage value would have an IRR of 8% (http://www.ehow.com/info_12087321_difference-between-accounting-rate-return-internal-rate-return.html).
The accounting rate of return (ARR) is the average annual income from a project divided by the initial investment. For instance, if a project requires a \$1,000,000 investment to begin, and the accounting profits are projected to be \$100,000 annually, the ARR is 10%. The advantage of the ARR compared to the IRR is that it is simple to calculate (http://www.ehow.com/info_12087321_difference-between-accounting-rate-return-internal-rate-return.html)
The difference in the figures listed on the chart provided is that the Internal Rate of Return includes working capital requirements while the Accounting Rate of Return does not, hence the difference in the percentages.

PRESENTATION
The significance of the unadjusted payback period in this decision is because it represents the time that it will take for the initial investment to be paid back. In this case the initial investment will be paid back in 5 years at an internal rate of return of 10.861% and an accounting rate of return at 10%.
PRESENTATION